FedEx Shares Plunge After Latest Earnings Miss

The company’s shares fell more than 10% in premarket trading.

On Wednesday, Wall Street analysts turned on FedEx after the company failed to deliver on its latest earnings report. Analysts from four different firms downgraded the stock after learning it missed its first-quarter estimates. 

A Deutsche Bank analyst downgraded the stock from buy to hold, stating that the problem is due to more than just weak financials. Analyst Amit Mehrotra said that in addition to “very weak” financials, it’s concerning how little company management acknowledged these shortcomings. 

For its part, FedEx management blamed the earnings miss on Amazon, trade war concerns, and foreign business issues. Let’s have a closer look at the earnings report.

Where did FedEx go wrong?

During the fiscal first quarter, Wall Street was expecting FedEx’s earnings to be down slightly. Analysts just didn’t expect them to fall quite as far as they did. 

Previous estimates had FedEx reporting earnings of $3.20 per share and revenue of $17.14 billion. Instead, earnings came to $3.05 per share and revenue was $17.05 billion. 

Not only that, FedEx lowered its full-year guidance. The company now expects full-year earnings to fall between $10 and $12 per share, falling short of its previous target of $14.55.

FedEx CEO Fred Smith blamed the earnings miss on lower demand due to trade war concerns and global economic weakness. Smith also said the shortfall was partially due to the loss of a “large customer,” which most people presume to be Amazon. 

Earlier this year, FedEx chose not to renew its ground shipping contract with the e-commerce company. This did reduce the company’s annual revenue by $1 billion, though FedEx should easily be able to recoup those losses. 

How Will FedEx Bounce Back?

To deal with the decline in revenue, FedEx plans to cut costs and scale back its air delivery network after the holiday season is over. The company also plans to raise its shipping rates by an average of 4.9% starting Jan. 6. And Smith said the company is looking for other partnerships to replace its contract with Amazon.

Overall, analysts had been expecting a few losses but they didn’t expect the earnings report to be quite so grim. FedEx is in a period of transition as it works to build out its European network and streamline its services in the U.S. The company will most likely be able to rebound from this but it could take a while.